Splinterlands | SPS 'Real Yield' Potential!

I see some potential for the SPS 'governance' token from Splinterlands the be a 'Real Yield' token that might be worth investing it for some nice passive returns.

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When it comes down to Crypto, I'm always looking for tokens that pay passive returns that come from actual revenue a product or protocol is earning opposed from some tokenomics / ponzinomics where you just earn more of the token. I've been staying away from most of the DeFi stuff but instead focused on dividend-paying Gambling Dapp coins which served me quite well (See Gambling Dapp Dividends Report). Right now, I see SPS in many ways similar to those for these reasons.

The Bottom Line

In the end, everything boils down to users, as long as more of them come into the ecosystem there is potential for prices to go up and good earnings, once this starts turning around it's time to get out.

Splinterlands in this regard I would say is in a pretty good spot with a game that is actually fun to play and makes me now want to put money into without the main intention to get out more. It has also a really solid core development team and a lot of plans for expansion to become a game studio with multiple products.

Growth Potential

Splinterlands has 170k daily active accounts of which I argue that more than half are bots or alt accounts. This leaves quite some room for growth but also not a crazy amount I would say. Splinterlands remains a very niche game and the mobile app kind of sucks (the last time I checked at least). Hearthstone (which I used to play in the past) as a comparison right now has 340k daily active players and over 3 Million Monthly players.

If Splinterlands realistically has a chance to reach 1/3 of the hearthstone players and if now it has roughly 30k real players, there is a x4 growth potential in userbase. This is an extreme conservative estimation just to go by the premise that there is enough growth left in the game at this point in time.

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SPS & Real Yield

In a way, I see SPS mainly as a token where those that hold and stake it gets granted part of the revenue the game is making as a mechanism to reward players that are providing these earnings. These are some of the ways:

1. Voucher Drops: 20000 Vouchers are being dropped to players that stake SPS each day and these vouchers can be used or are needed to pay for certain things in the game like bonus packs. This is pretty much a direct Real Yield that goes to SPS Holders. The Value of Vouchers (currently 0.43$) fully depends on the demand and how much use case the devs give them. Since they are capped to 20000 each day (8600$) a direct return can be calculated in relation to SPS.

SPS Max Supply = 3 Billion which means 234 Million Market Cap for the full supply at 0.078$
Right now if all of this would be available and staked and 3.14M Yearly value of vouchers it would mean a +1.34% Yield. Since it will be 5 years since all SPS will be in circulation and a lot of it is liquid or locked up in liquidity pools while there also will be burn mechanics, this percentage will be higher (If the value of Vouchers holds up).

With 440M SPS staked, the current return on vouchers is +9.15%

2. Airdrops: This is another form of Real Yield that might be underrated. It is clearly the plan that Splinterlands becomes an ecosystem for different games with SPS holders getting an initial airdrop of tokens or in-game assets that players will want to pay for. In the short term there will be the Genesis League Soccer game which is developed in-house and will for sure give an airdrop & there is also the tower defense game created by a 3rd party team that most likely will give an airdrop to SPS holders. Most likely there are more of these to come and it is one of the valid reasons to hold SPS, especially if the plan to become an ecosystem for games succeeds.

3. Tournament Prizes & Delegation Earnings : The game earns a small % of the 2nd hand card sales on the site and this money seems to be recycled to fund tournaments. Since players need to have SPS staked to enter these it also counts as a real yield. SPS holders that are not actively playing will be able the rent out Staked SPS to other players that need it in the game to enter tournaments also getting their share of the earnings.

Inflation 'Fake' Yield & Other SPS Value

Aside from the Real Yield, there is also fake yield that just comes from inflation diluting the circulating supply, burn mechanics that reduce the supply, & the governance voting aspect.

1. Staking Rewards: This is a DeFi mechanism that isn't a direct yield but more a way to reduce the rate which those that have SPS Staked are being inflated due to new supply that gets released.

2. Play2Earn Rewards: This is more of the supply that is released to mostly the players that spending money or holding cards. I guess for part of these earnings SPS needs to be staked onto other players but it's not very clear yet how exactly that will work.

3. Riftwatchers SPS buying Pressure: The new mini-set of Riftwatchers cards can only be purchased with SPS which will create some short-term buying pressure. All the SPS will go to the treasury and governance voting will decide what is done with it. It can get burned which just creates a lower supply benefitting SPS holders as they will get a bit higher % returns from the real yield sources or used in a certain was to promote the game which mean it will need to get sold or given away creating downward price pressure in the short term. There will be 5 Million Riftwatcher Packs at a price of 5$ in SPS each, so maximum a 15M $ SPS burn and I assume future mini-expansions will work in a similar way.

4. Ecosystem payments: Splinterlands aims to become a platform similar to hive-engine where 3rd party developers can easily tap into to create their own games. SPS will be the main token for this similar to BEE works on hive-engine. So this also should create some buying pressure.

5. SPS Burn for DEC: A mechanism will be implemented for players to be able to mint 1000 DEC by burning 1$ worth of SPS. This will be another way to possibly reduced the supply giving higher real returns to those that have SPS Staked.

6. Liquidity Pool Rewards: In order for tokens to be liquid it's important for there to be enough of the supply locked inside liquidity pools. A lot of the SPS inflation will go to those taking the risk of impermanent loss (which most likely will cut into their overall returns a lot).

7. More Use Cases: The devs have the intention to add more use cases for SPS going forward which still have to be created or announced.

8. Governance Voting: SPS holders will be able to create and vote on proposals which I personally see more as a gimmick as the ones in charge will have more than enough SPS voting power to guide the outcome of any given vote. There are also no real earnings linked to this and I don't believe anyone would actually buy SPS just for these voting rights. overall for me everything DAO related is just a gimmick

9. Nodes: SPS will be needed to buy nodes and the price goes up as more are being sold. I'm not tech savvy enough for things like this so I leave it for what it is. There are rewards for this which again just come from inflation.

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Potential Selling Pressure

So DEC failed to act as a reward token since it was way too volatile and now also is trading well below the pegged 1000 DEC = 1$. This mostly because just way too much is being printed out of thin air right now. (Image from @dalz ->Link)

So the question will be how much SPS selling pressure there will be once it becomes the main reward token while tokens also get released to the Team, partners, advisors, stakers, Liquidity Providers, Node Runners. This somehow will need to be offset by investors that want the passive yield, players that need more to stake or buy Riftwatchers packs (but are also earning it), 3rd party developers, ...

It's really hard to make a proper estimation of how much SPS will be rewarded to players once they go live and how much new players are willing to invest or stake as the requirement to have SPS instantly makes Splinterlands a game that might just become too expensive.

Personal SPS Approach

I'm right now fully seeing SPS as a Dividend paying coin to hold for the mid-long term getting all the benefits that come from it. The price and overall valuation at the moment doesn't seem to be extreme on the high side giving both upside price potential and returns at the same time which are things that I'm looking for. I currently have 60k SPS Staked without ever having to buy some and aim to possibly get this to 100k. If there ever comes a new hype cycle with a rapid increase of users, I might sell some of my assets and take profit.

If the amount of SPS that will be rewarded is higher than expected with a result of the price going a lower, I might be looking to accumulate purely based on the expected passive returns. For now I just continue to stake and accumulate organically from the game.

Conclusion

Purely as a token to invest in to get a passive real yield, SPS seems to be a valid option right now at the current price. It very much looks like there is quite some growth left in the game and the entire ecosystem while the earnings that make up the yield will provide a floor price that is not purely speculative. I do see the upside as limited as the devs have the power to change how things or dump a lot of the supply in case the price goes too high making sure most of the earnings flow back to them a bit similar to how the printer went Brrr on card packs when card prices went too high which is no complaint by the way.

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